The ongoing, high-stakes political football battle between the nation’s two Congressional chambers got hotter Monday night after the House of Representatives passed its third version of a continuing resolution to keep the government funded past the midnight deadline.
In a vote of 228 to 201, the Republican-controlled House sent their latest CR back to the Senate for approval. And just as the two previous bills have, this one faces a sure demise in the Democratic-controlled chamber. Senate leaders have made clear throughout the day – and through the funding showdown – any bill containing language to modify or repeal the ACA is a non-starter, as is a short-term stop-gap funding measure.
The Senate is expected to vote on the House-passed CR around 9:30 p.m. ET, opening the door to another game of legislative Ping-Pong. Senate leaders have said they expect to strip the House's ACA amendments, and send it right back to the Republican-controlled body. Depending on vote timing, sources say that process is expected to take as little as 15 minutes.
This House-passed version contains a provision that would delay the Affordable Care Act’s individual mandate by one year, and an inclusion of the Vitter amendment, which subjects members of Congress, members of the president’s administration, and other government members to the same requirements the general American public is subjected to under the ACA, President Barack Obama’s signature legislation.
Though the House’s third CR cleared the chamber, the passage was not without a fight. As the federal government hurtled toward a likely partial government shutdown, members who once stood firmly rooted in their positions to support a repeal or alteration of the ACA began to waver as the clock moved closer to midnight.
Shortly before the bill’s final vote series, Representative Peter King explained the mounting pressure on House members’ shoulders.
“If we didn’t stop (the back and forth), we’re not going to stop (supporters of the ACA). Now we’re off to just hopefully get a clean CR in time,” he said. “If this were a secret ballot, we’d have three-fifths or two-thirds voting to end all this. There’s just a lot of pressure on people right now. On this (vote), it was particularly hard because it looks like if you’re voting no, you’re voting to protect a privileged class.”
Markets Worry About Shutdown Effects
Though the Senate and the president believe a government shutdown isn’t all but guaranteed at this point, market participants on Wall Street have a different idea.
In a note to clients Monday, the Potomac Research Group said it doesn’t see any signs of reconciliation on the horizon, and a government shutdown is highly likely for the first time in 17 years.
“We held out hope that a short-term continuing resolution would pass by midnight tonight, but that now looks far-fetched. None of the key players will blink anytime soon, so this could last for a while. For the markets, a state of exceptional uncertainty will persist for at least another month, possibly until late December,” the Washington-based consultancy wrote.
But Todd Schoenberger, managing partner at LandColt Capital in New York said a shutdown will not happen – but the fear is sending shock through the markets – with the Dow down about 100 points in mid-day action.
“We've been through too many of these end-of-world crises, only to hear about a resolution being delivered in the final hours. Sadly, Congress continues to discredit itself by playing these political games and negotiating via media interviews rather than face-to-face when it pushes the country to the brink,” Schoenberger said.
If the shutdown becomes reality, the consequences the U.S faces are somewhat uncertain.
“Much of the government spending that has a direct effect on the economy – such as entitlement programs like Social Security and Medicare, as well as existing government contracts for constructions projects and purchases of weapons systems – will not be affected by a shutdown. Government employees who are temporarily furloughed may cut back their spending, and business and consumer confidence may be adversely affected,” Nomura outlined in its note to clients.
In a note to clients Monday morning, Peter Boockvar, managing director and chief market analyst for The Lindsey Group said previous government shutdowns have had little impact on U.S. equity markets, using the most recent as an example. In that case, a temporary fix ended the shutdown, and markets ended little changed from the first day to the last.
“Of course the circumstances are much different today in many ways but markets should assume that a deal will come sooner rather than later because the negative consequences get too large the longer this all lasts, particularly with the debt ceiling,” he wrote.
The bigger concern is a hit to the nation’s economy if and how long a shutdown happens. Michael Block, Chief Strategist at Rhino Trading Partners said in a note to clients Monday, he expects a shutdown to shave up to 1.4 percentage points off fourth-quarter gross domestic product.
“Perhaps more important, failure to reach a compromise here will damage the credibility of the U.S. political system even more acutely than recent shenanigans have already,” he wrote.
Next Congressional Battle
September 30 is not the only deadline Investors and market participants are keeping their eyes focused on. A much bigger concern is the debt ceiling deadline on October 17 – on that day, the U.S. Treasury Department has said it will max out its “extraordinary measures” to fund the government’s financial obligations. At that point, conceivably, the United States will, for the first time in history, begin to default on its obligations, which could ignite massive backlash in financial markets and even spark ratings services to downgrade U.S sovereign debt. And that has market participants worried.
What’s making analysts nervous is the complete inability of Congressional leaders to work out a compromise on the CR. If lawmakers are unable to come together on even a funding proposal through the end of the year, does that bode well for the negotiations sure to come on increasing the nation’s debt ceiling?
“The consequences of the debt limit becoming binding are potentially much more severe. Arrears on some government obligations would probably be unavoidable, and Treasury officials have indicated that they see no clear way to avoid arrears on debt service obligations if the debt limit becomes truly binding,” Nomura wrote.
Block added, “Failure to pass (the debt ceiling resolution) would cause much bigger potential issues and not being able to resolve this issue first will not help investors’ confidence,” Block wrote. “Some pundits do think that a government shutdown will be good for markets because it will make Congress see how urgent and dire it is that they resolve the debt ceiling crisis.”